Although the cattle market seemed to start the
week on a renewed note of optimism, psychology has quickly soured thanks
to crashing futures and imploding beef cutouts. Such a false start
could make it tough for feedlot managers to hold the cash line over the
next several days. FCE internet business later this month could spark
country trade volume in one direction or the other. Live and feeder
futures are expected to open significantly lower, checked by residual
selling interest, long liquidation and signs of struggling beef demand.
Expect the cash hog trade to open Wednesday with
bids steady to $1 higher. This week's slaughter should be around 2.18
million head, up slightly from last week. Carcass weights trended
seasonally lower last week. Weights are below last year as well as the
five-year average, and are expected to trend lower over the next eight
weeks. Lean futures are likely to open mixed as traders cautiously
position ahead of the June Hogs & Pigs scheduled to be unveiled
Thursday.
| BULL SIDE | BEAR SIDE | ||
| 1) | Although late summer cattle slaughter is scheduled to be more than ample, most expected July chain speed to be moderate relative to June before cracking back up in August. | 1) | Beef carcass value collapsed on Tuesday with the choice box quoted as much as $4.66 lower. It would appear that the best of early summer demand is in the rear view mirror. |
| 2) | Bullish hopes that continued lighter cattle carcasses from 2016 and increases in weekly beef export sales may keep enough seasonal demand in play to clear expanding fed cattle inventories do not seem unfounded. | 2) | Cattle futures quickly surrendered Monday's advance Tuesday, pretty much exposing it as a dead cat bounce with little technical significance. |
| 3) |
The pork cutout jumped solidly
higher Tuesday with all major primals making decent contributions
(especially the fresh cuts and ribs).
|
3) | The pork cutout may seem hot now, but in just two weeks or so it will begin experiencing successive price decreases through to September. Even if the bellies continue to move upward, the forecast weakness in the other primals should temper the entire cutout. |
| 4) | While hog buyers tried to limit bids on Tuesday, they didn't manage to move many numbers. The seasonal trend is for cash hog prices to strengthen over the next few weeks. | 4) |
Not only are most analysts
expecting the USDA to confirm a 2% to 3% increase in the breeding herd
when the Hogs & Pigs report is unveiled on Thursday, most
number-crunchers are assuming that previous farrowing estimates will be
increased.
|
OTHER MARKET SENSITIVE NEWS
CATTLE:(Hoosier Ag Wednesday) -- U.S. Secretary
of Agriculture Sonny Perdue will travel to China this week, joining with
U.S. Ambassador to China Terry Branstad, to formally mark the return of
U.S. beef to the Chinese market after a 13-year hiatus. In events in
Beijing and Shanghai on Friday, June 30, 2017 and Saturday, July 1,
2017, Perdue will meet with Chinese government officials to celebrate
the return of American beef products to the enormous market after
shipments were halted at the end of 2003. On Friday in Beijing, Perdue
and Branstad will ceremonially cut prime rib that originated in Nebraska
and was shipped by the Greater Omaha Packing Company. "I will be proud
to be on hand for the official reintroduction of U.S. beef to China,"
Perdue said. "This is tremendous news for the American beef industry,
the agriculture community, and the American economy in general. We will
once again have access to the enormous Chinese market, with a strong and
growing middle class, which had been closed to our ranchers for a long,
long time. There's no doubt in my mind that when the Chinese people
taste our high-quality U.S. beef, they'll want more of it."
China has emerged as a major beef buyer in
recent years, with imports increasing from $275 million in 2012 to $2.5
billion in 2016. The United States is the world's largest beef producer
and in 2016 was the world's fourth-largest exporter, with global sales
of more than $5.4 billion.
HOGS: (Agrinews) -- U.S. pork exports continue
to be a focus of attention and concern as U.S. pork supplies and prices
stay plentiful.
"It's exports," said Dr. Dermot Hayes, professor
of economics and finance at Iowa State University and the Pioneer
Hi-Bred Chair in Agribusiness at ISU.
Hayes is a livestock economist, as well, focusing on the swine market.
"If we produce more, the price should be down,"
he said at the World Pork Expo National Pork Board-sponsored PORK
Academy seminar on U.S. exports and international trade.
While lower weights or domestic consumption
could be an answer for pork supplies that are plentiful and prices that
are remaining steady, Hayes said exports are the key to the puzzle.
"We have more pork coming at us, and we still
see some decent prices. If your supply is growing by 3 percent and your
demand is growing by 4 percent, then that can happen," he said.
As of April 2017, U.S. pork exports were up 15
percent, and between 25 percent and 30 percent of U.S. pork production
is exported.
Hayes has traveled to and studied the China
market for three decades, and he was preparing to travel there following
the World Pork Expo.
"I'm interested in China because the numbers are big," he said.
While U.S. pork is largely kept out of the
Chinese market over the U.S. use of ractopamine, Hayes said the U.S. is
benefiting from Canada and the European Union increasing exports to
China.
"We are getting the backfill," he said, adding that the U.S. is benefiting in a way that surprised him.
Hayes has long talked about the trade benefits
to the U.S. if the U.S. industry dropped the use of ractopamine, a feed
additive that promotes leanness, which is banned in China.
"I was pessimistic about what would happen if we
didn't drop ractopamine. I didn't see this happening, but we are kind
of getting the benefits of the Chinese market without actually shipping a
lot of product there," he said.
China imports some 3 million tons of pork
annually. Hayes said countries such as Spain are stepping up production
to supply that market.
The U.S. remains the world's low-cost producer
of pork, along with the Brazilian state of Mato Grosso. But with foot
and mouth disease in the hog population in Mato Grosso, Hayes said that
is keeping the Brazilian pork from entering some major markets.
Even with added costs for the Chinese market, Hayes said the U.S. still can produce pork more economically than the Chinese can.
"If I took the price and added on 15 cents a
pound for transportation, then 20 cents a pound for the duty and then 12
cents for value-added, we can still get pork into China at a price that
is lower than their production costs," he said.
But ractopamine remains the roadblock.
"If we didn't have this ractopamine issue, we would be very competitive against Chinese carcasses," Hayes said.
As the U.S. and others, including South America,
continue to expand their breeding herds, Hayes said certainty in trade
and in foreign markets is vital.
"If all of the Americas is expanding and Europe starts to expand, we better have a market for all of this product," he said.
Prices for domestic Chinese pork have been
falling, and Hayes said some groups who focus on the China market have
suggested that the country is cutting back production due to
environmental and housing concerns and high land costs, which will keep
production stifled.
However, with concern over the Trump
administration's talk on trade and tariffs against China, fears of a
trade war could prompt protectionism and an expansion of the Chinese sow
herd. A swing toward a protectionist China could be devastating for the
U.S. and the rest of the world's pork producers.
"If it goes toward protectionism, the Chinese
are going to rebuild their herd, and we've got 3 million tons of surplus
on the world market," Hayes said.
If not, he said he expects China's pork imports
to stabilize around 3 million to 5 million tons per year, in addition to
variety cuts.
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